This PPT slide, part of the 22-slide Financial Ratios (Comparables) Analysis PowerPoint presentation, presents a focused overview of liquidity ratios, specifically the Quick Ratio and the Working Capital to Sales Ratio. These metrics are essential for assessing a company's short-term financial health.
The Quick Ratio, also known as the acid test, evaluates a company's ability to meet its short-term obligations without relying on inventory sales. The formula is straightforward: current assets minus inventory divided by current liabilities. A ratio below 1 indicates potential liquidity issues, suggesting the company may struggle to settle debts promptly. If the ratio is declining, it raises concerns about increasing overdraft risks.
The Working Capital to Sales Ratio provides insight into how much capital is necessary to support operations beyond what's tied up in fixed assets. The formula involves subtracting current liabilities from current assets and then dividing by sales. A decreasing ratio might signal over-trading, where the company lacks sufficient resources to sustain its operations effectively.
Both ratios are influenced by the nature of the company's business, which is highlighted in the slide. Understanding these metrics can guide decision-making for potential investors or stakeholders assessing financial stability.
This slide serves as a practical tool for executives looking to deepen their financial analysis capabilities. It emphasizes the importance of liquidity in maintaining operational efficiency and highlights potential warning signs that could affect business continuity.
This slide is part of the Financial Ratios (Comparables) Analysis PowerPoint presentation.
This presentation is created by former McKinsey, BCG, Deloitte, EY, and Capgemini consultants. It delineates the most critical strategic ratios for Financial Ratios/Comparables Analysis.
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